Should the World Start Preparing for Recession?
Trade wars between China, the United Stares, and other countries are causing global markets to head closer to recession.
The chances of recession happening in the United States (and affecting the rest of the world) are higher now than they were last week as the trade war continues.
China and the United States are at war over tariffs, and the European Union and Canada are not likely to keep their heads down for long either. There is concern that the ongoing trade war could trigger a recession in the United States.
Although the last recession reading showed that there was not a danger of this serious economic event occurring in the United States, that was before President Donald Trump unveiled new tariffs for a number of countries that were higher than expected. It was also before many countries hit back with new tariff policies of their own.
The stock market is down right now and has been for days. The Nasdaq Composite lost about 1,800 points in the last few days, and we are seeing numbers for the stock market that recall pandemic figures. This is why many consumers are panicking and economists are talking about recession, but it is important to note that the movement of the stock market does not encapsulate the entire market.
What Low Stocks and High Prices Mean for Companies
With stock prices dropping as a result of new tariffs, companies across the globe are reevaluating their chances of future profits. They are having to change up their budgets and profit forecasts, dramatically shifting their focus. The simple fix is to raise prices and hope that their customers can keep up, but that does not always work.
Consumers see the high tariffs and the low stock prices and reevaluate their spending. We are seeing that happen on the crypto market with investors selling off their coins and on the stock market with a major selloff of shares taking place over the last few weeks.
Higher tariffs mean that companies will have to adjust their spending and their prices to make ends meet. They will have to talk to shareholders about why they are not meeting sales targets and why their costs have shot up. A lot for their suffering is passed onto the customers, which when widespread enough, can result in a global recession.
China just announced 84% tariffs on U.S goods, and that is going to make prices higher for everyone. At midnight on Tuesday, the U.S. started taxing Chinese goods as high as 100%. Previously, China said they would increase tariffs on U.S goods coming into the country to 34%, but they have since increased that to 84%.
Is Recession Certain?
There is a higher risk of recession today than there was yesterday, and the risk of recession is higher this week than last week. That being said, recession is not certain at this point. China and the U.S. as well as other countries, could back down from their strong stances on tariffs, but they are likely to hold them for at least a few more weeks.
Once the economic impact begins to be felt, though, the countries may relent to give their citizens a break. If they do not, then increases in prices will likely cause inflation to skyrocket and lead to layoffs, foreclosures, bankruptcy, and other severe economic hardships. As those events occur, citizens will reach out to the government for help, and that is when the governments will most feel the pinch of their trade war.
Recession is still avoidable, but consumers should expect lower cryptocurrency values, lower stock prices, and higher prices on goods. Even if a recession does not happen, people are going to be suffering more than usual under these tariffs.
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